Bankruptcy faq

Bankruptcy is an option for people in debts when there is no other way out. Generally the Court gets involved in this and helps you to get out debts. A Bankruptcy in UK can be filed in the High Court in London or in a County Court. There are loads of questions that pester people who are declared bankrupt or want to know more about Bankruptcy. Here are the most frequently asked questions on the implications and effects of bankruptcy.

What will happen to my home if I am in a bankruptcy?

Here are some answers to the most frequently asked questions.

Q. Is there a chance of loosing my home in a bankruptcy?

A. In a bankruptcy the Official Receiver or the Trustee can sell your home for repaying the bankruptcy debts. However it depends whether your house is freehold or leasehold or jointly owned. It is important to remember that if your home is mortgaged and you haven’t made your payments, your lender may be able to sell your home. You should consider contacting your lender about your bankruptcy and your mortgage payments.

Q. Under what conditions will the Official Receiver or Trustee sell my home?

A. In case you are residing with your spouse or children, then the sale can be put off until the end of first year of your bankruptcy.

Q. What can be done to stop the Official Receiver or trustee from selling my home?

A. Your husband, wife, partner, a relative or friend may be able to buy your beneficial interest in the home. This will stop the Official Receiver or trustee selling your home later.

Q. What does ‘beneficial interest’ in my home refers to?

A. This is your interest in the process of sale of your property unlike the legal title of the property as held by the owner. The beneficial interest is the whole value of the property in case you are the sole owner. In case of a joint ownership, the beneficial interest is usually an equal share of the value (provided there are any amounts owned on mortgages or other home loans, these will be repaid from any proceeds of the sale).

Q. What will be the impact of bankruptcy on my beneficial interest and legal title?

A. The beneficial interest always gets transferred to the Official Receiver or trustee. If you are the owner of your home, even the legal title is transferred to the Official Receiver or the trustee. However the legal title is retained in case the home is jointly owned. It remains with you and your co-owner. But the Official Receiver can take action against your property even though. It is the duty of the Official Receiver or the trustee to sell the beneficial interest for paying your creditors. There is one way to do so by selling this interest to your spouse, relatives or friends.

Q. In case someone wants to buy my beneficial interest, how should I go about it?

A. If someone wants to buy your beneficial interest, then he/she must contact the insolvency practitioner if he is handling your bankruptcy. However if the Official Receiver is handling your bankruptcy, the one who wants to buy the beneficial interest must get in touch with him. Your beneficial interest can be transferred to your spouse, friend or relatives. Even the legal title can be transferred to them. But for this they need to make the following payments:

• or a solicitor or licensed conveyancer to act for them in the transaction;

• £211 (as at February 1999) to cover the Official Receiver’s legal costs. (now £510 as at 25th August 2009) and (now £600 as at 1st April 2010)This amount must be paid in advance. It includes an allowance for expenses which may be incurred in the transaction. If the allowance is not fully used, they will receive a refund;

• the cost of an independent valuation unless you already have a very recent independent valuation of the property;

• the agreed purchase price for the beneficial interest based on the valuation. If your home is now worth less than the amount you still owe on it, the price of the beneficial interest will be set at £1.

The purchaser will have to submit to the Official Receiver all the up-to-details in writing of the amounts which is essential to pay off the mortgage and other charges. If at a later date an approach is made to the Official Receiver to purchase the beneficial interest, and the property has increased in value, it is likely that the purchase price will be more than £1. If the home is mortgaged, the lender may have to agree to the sale - the solicitor or licensed conveyancer dealing with the transaction will be able to advice on this.

Q. What if I buy the beneficial interest provided I am the sole owner of the property?

A. Yes, this is possible for the Official Receiver or the trustee to transfer the beneficial interest and legal title to you or to anyone in your family or friends. The official Receiver will give you the details on the entire proceedings. (Please note: In this type of transaction, costs like those listed overleaf must also be paid (but there is no low-cost conveyancing scheme).

Q. What will happen if no one buys the beneficial interest?

A. In case no one buys your beneficial interest, it will remain with the Official Receiver or trustee. It will not return to you on your discharge of bankruptcy. It may be that the value of beneficial interest may increase with the hike in the market value of your home. This increased value goes to the Official Receiver or trustee to repay your debts irrespective of the fact that that the home is sold some time after you have been discharged.

Q. What happens if I rent my home?

A. You have to be careful. In case you fail to retain the terms of tenancy agreement, the landlord might take an action against you.

For this please seek legal advice. In most cases it is seen that the Official Receiver tells the landlord about bankruptcy.

Q. Did you know about a J Restriction Form?

A. A Form J restriction is an entry at the Land Registry, made on the application of the trustee, against a property that is jointly owned by a bankrupt. It is a record of the trustee's beneficial interest in the property. It means that the Land Registry must notify the trustee of any dealings in connection with the property.